With the Independence Day holiday cutting the trading week short, municipal bonds were able to spend most of it recovering from the recent selloff.
Deals that had been postponed in previous weeks came to market Monday and Tuesday and took advantage of stability.
“The benefit of finding solid footing at the end of June allowed the market to move into a new quarter and a new month with a little more confidence,” said Jim Colby, portfolio manager and senior municipal strategist at Van Eck Global. “We’ve had positive performance in the sense that we haven’t suffered any more price declines and haven’t seen evidence of any significant outflows.”
Helping support the market in the first few days of July was an estimated $60 billion in June and July reinvestment money. “If money happens to be on the sidelines, yields are far more attractive now in munis on a taxable equivalent basis,” Colby said.
In the largest deal of the week, Citi priced $662.9 million of Louisiana Tobacco Settlement Financing Corp. asset-backed refunding bonds. Louisiana Commissioner of Administration Kristy Nichols said pricing the deal during the holiday week allowed investors to focus on the sale ahead of a growing new-issue calendar.
Nichols also wanted to price the deal before the June employment numbers were released Friday morning. Indeed, the better-than-expected jobs numbers pushed yields higher across the curve.
New York’s Metropolitan Transportation Authority also priced a $336 million revenue bond sale after postponing the deal originally scheduled for June 19. RBC Capital Markets was able to lower yields as much as seven basis points from preliminary pricing after lowering yields as much as three basis points from retail pricing.
Outside the few large deals, a relatively quiet primary allowed traders to turn to the secondary.
“The holiday-interrupted week is one that we can look back on and collectively take a sigh of relief,” Colby said. “New deals were temporarily postponed and it takes the pressure off some of the dealers in terms of how they are committing capital. It enables them to make better bids in the secondary.”
Overall for the week, trading activity was subdued according to trades compiled by Interactive Data. After activity spiked the previous week in a rally following the massive selloff, the buy-to-sell ratio came back down to its recent averages.
On Monday, there were 42,647 trades of $6.303 billion in par value. That compares to the previous Monday’s 55,933 trades with a par value of $9.307 billion. Activity increased as the week progressed. By Tuesday, there were 52,414 trades of $7.968 billion. That compares to the previous Tuesday’s 65,802 trades of $11.717 billion.
The ratio of buy trades to sell trades rose week over week. The buy-to-sell trade ratio was 1.5 on Monday versus 1.1 on the previous Monday. On Tuesday, the buy-see ratio climbed to 1.6 from the previous Tuesday’s 1.2.
And bonds in the secondary market look cheap, Colby said, after the May and June selloff. “The bonds that are out for the bid have received pretty good attention. Reasonable bids are being made in this market with the realization we are 100 basis points cheaper now than at the beginning of May.”
For the week through Wednesday, the Municipal Market Data scale ended flat. The 10-year closed steady at 2.56% and the 30-year was flat at 3.83%. The two-year was also steady for the week through Wednesday at 0.50%.
The Municipal Market Advisors scale was also steady for the week before the Fourth of July holiday. The 10-year and 30-year yields were steady at 2.72% and 3.95%. The two-year was flat at 0.53%.
